Seeing Red
Markets Update
Crude Oil
WTI has traded in a fairly wide range ($84.70 - $87.35) on the day, currently up $1.16 and just under $87/bbl on ideas that inflation may be calming a bit. The prompt month contract (Dec 22) opened the week above $90 before trending downward over the last few days. Global recession fears and Covid lockdowns had suppressed crude prices over the last several months but due to the continued tight inventory, OPEC+ November production cuts and Russia crude embargos, many are now forecasting WTI to break $100/bbl in the near future. Goldman Sachs’ Brent forecast is $110/bbl for 2023.
Following the release of Q3 earnings, for 2023 many Producers have elected to hedge ~1/5 less than compared to 2020. The lack of hedges shows how bullish U.S. producers are on crude prices.
The European embargo on Russian crude is set to take place in December. Due to this, Russia’s crude production is expected to decrease by ~1.1mm bbls/d. Russia has recently increased exports to Turkey, China and India, which are scheduled to end after the embargo is put into place. Turkey, China and India import as much as 2.2mmbbls/d from Russia.
The EIA Petroleum Status Report for the week ending November 4th, 2022 was released on Wednesday and indicated a 4.0mm bbl crude build from the previous week. At 440.8 bbls, crude storage is ~3% below the five year average for this time of year. Despite the overall build, Cushing dropped a million bbls to 27.2mm. Crude production reversed its drop from a week ago, showing a 0.2mm bpd increase. Refinery run rates shot up to 92.1% on the week, well above 74.5% run rates two years ago during the pandemic.
www.eia.gov/petroleum/supply/weekly
Rig Count Update:
The U.S. O&G rig count fell by 15 on the week to 868, with all major basins lower or flat with the exception of the Marcellus. Despite the double-digit loss, the count is up 206 rigs since the beginning of 2022. Permian led the losers with a five rig drop, followed by the Haynesville at four. SCOOP+STACK combined play kept flat on the week at 43 active. Despite the large decline, the “experts” are still calling for a significant runup in the rig count in 2023.
Natural Gas
Natural Gas prices rebounded and even peered over $7 early in the week. With a major cold blast headed to the US by week’s end, any storage draws will be the focus for the next week as the duration of the winter weather will be the driver. LNG exports remain strong but look to be subdued as the opening of Freeport’s facility remains a question. Eyes will remain on Europe as gas continues to flow and storage is nearly full, however, if Russia enforces crude price caps and early winter weather arrives, the uncertainty will continue to pressure prices. With the EIA’s US production forecast set to reach record highs, the market remains with the bears.
Weak demand is keeping prices at bay in the Midcontinent. Demand in the region is averaging 15 Bcf/d, 20% below last year, according to S&P Global Insights, but a colder weekend forecast could push for an increase. Same story for inflows as production cuts in Western Canada have volumes down as much as 2 Bcf, 15% off last year this same time. Prices did see a bump earlier in the week as capacity constraints on Southern Star Central Gas Pipeline pushed production and supply downward in the region. Chicago city-gates comes in a $.20 discount to Henry Hub, while ANR-OK is $.02 off at $3.43 and NGPL-Midcon is $.59 back at $2.60.
The EIA released storage numbers this morning, coming in at 3,580 Bcf, representing a net +79 Bcf increase from the previous week. This increase was slightly below marketplace expectations of +82. Stocks were 37 Bcf higher this time last year, however, this week’s levels are still within the 5 yr. historical range of 3,656 Bcf.
Natural Gas Liquids (NGLs)
Mont Belvieu product prices were mixed on the week, modest to flat moves for Propane, N. Butane, and Ethane, with Isobutanes 8% higher and N. Gasolines 4% lower compared to the same time last week. Conway prices were largely unchanged with the exception of Isobutanes, which were 16% higher on the week. Prices as a percentage of WTI were higher across the board (minus MB N. Gasoline) as product prices were steady/higher while WTI fell off ~4%.
Talk Energy Podcast
This episode’s guest is Isaac Orr. Isaac is a Policy Fellow at the Center of the American Experiment. I came across his work by reading a recent white paper he co-authored titled “The High Cost of 100% Carbon-Free Electricity by 2040.”
A few weeks ago I put out a tweet with a chart from his report showing that the LOCE of new solar and wind project’s is significantly higher than the existing energy sources. The tweet ended up going viral and there were a lot of people in the replies with push back to the chart.
Instead of arguing on Twitter I decided to have the author of the report on the show.
This episode we talk about the methodologies of calculating the levelized cost of energy, and how there are various ways to distort the results. We dive into the politics of energy sources what specifically what Isaac’s state Minnesota is proposing. Lastly, we look under the hood of how the value of energy is calculated and try to better understand the true cost of energy.
Hope you enjoy the show!
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